Friday, April 10, 2009

New COBRA Policy And Cash-Strapped Small Firms

I had a conversation with a client about the new Obama administration and small business owners. I was telling my client about a recent poll by NFIB (National Federation of Independent Business) that showed 60% of business owners feel Obama doesn't understand their needs.
He was shocked and surprised the number was this high.
He wanted some examples. Well, here's one, pointed out in Entrepreneur Magazine by writer Dennis Romero: the recent COBRA policy in The American Reocovery and Reinvestment Act.
The American Recovery and Reinvestment Act reduces the amount laid-off workers have to pay in order to extend optional healthcare coverage under federally mandated COBRA (Consolidated Omnibus Budget Reconciliation Act) rules. Instead of writing monthly checks for 102 percent (the extra 2 percent for administrative costs) of the healthcare premium they enjoyed on-the-job, they now have to front only 35 percent. The caveat: The remaining 65 percent must be paid, up-front, by employers, which can then withhold the amount of the payments from their next federal payroll-tax contributions.
As one expert pointed out in the article, "At a firm with 10 people on COBRA at $1,000 per person, the employer would be laying out $650 each, which would be $6,500 per month. If that firm only has limited revenue, the $6,500 a month could be significant."
Let's hope this doesn't cause more people to lose their jobs. If I remember correctly, this bill was about creating jobs. Now, don't get me wrong, I want to help folks get COBRA coverage more than anyone. However, I don't want to see more people out of work needing COBRA coverage either.
--Ron Ameln, SBM

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